Federal workers state viable wage claims over government shutdown

Nonexempt federal employees who were required to work without pay during the government shutdown of October 2013 have raised viable FLSA minimum wage and overtime claims, a federal district court judge has ruled. Paying employees two weeks later than their scheduled paydays for work performed during the budget impasse amounted to a violation of the FLSA’s minimum wage violations, the employees plausibly alleged; and the failure to pay for overtime worked during that time period could also be actionable. However, claims that exempt employees lost their exempt status during that time period, and so were entitled to overtime compensation too, lacked merit. The court thus granted in part the government’s motion to dismiss (Martin v The United States, July 31, 2014, Campbell-Smith, P).

Government shutdown. The plaintiffs were federal government employees who were required to work during the two-week government shutdown but were not timely paid minimum wages and overtime for that work. As “excepted employees,” they continued to work and perform their normal duties but were not paid on their regularly scheduled paydays for the entire pay period; their paychecks reflected payment for work performed only through September 30, leaving them short five days’ worth of pay. They were eventually paid for all work performed during the shutdown, but the pay came two weeks later than their scheduled paydays — on the next scheduled payday following the end of the shutdown, when Congress finally allocated funds to pay the wage debts. The employees also alleged they were not paid overtime during the partial shutdown. Some of the prospective class members were classified as exempt employees but, they argued, because the government did not pay them on time, they did not satisfy the FLSA’s salary basis test for that time period. Consequently, they claimed that at least for the duration of the shutdown, they lost their exempt status and were thus entitled to overtime too.

The question before the federal court of claims was whether the employees were entitled to recover under the FLSA for the delay in the payment of their wages — an issue of first impression before the court.

Totality of circumstances? Urging the court to adopt a “totality of circumstances” approach, the government argued that the late payment of wages was excusable, all things considered, and thus did not violate the FLSA. It urged the court to take into account the legal constraints imposed by the Anti-Deficiency Act, which prohibited the government from paying employees when appropriated funds are not available. It also noted the brevity of the delay in finally paying the workers and the fact that the government paid them as quickly as possible; the employees’ knowledge that they would eventually receive payment (even if they did not know exactly when); and the absence of willfulness on the government’s part.

However, this “totality of the circumstances” test was expressly rejected by the Ninth Circuit, which nonetheless observed that “when late payment becomes nonpayment creates ‘a moving target’ that has the grave potential to subvert the intended purpose of the FLSA.” At any rate, “the weight of the most analogous authority militates in favor of applying the standard known as the ‘usual rule,’” endorsed by the Federal Circuit. Therefore, the court rejected the use of the government’s proposed test.

Usual rule applies. Under the “usual rule,” which numerous courts apply in this context, an FLSA claim accrues at the time of a missed regular payday and a violation occurs at that same time. While there is no explicit timeline for the payment of wages set forth either in the FLSA or its enabling regulations, the court paid heed to the Supreme Court’s emphatic pronouncement on this point in Brooklyn Savings Bank v. O’Neil, a 1945 decision. Observing that the FLSA’s minimum wage provision requires “on-time” payment, the High Court said the statute “constitutes a Congressional recognition that [the] failure to pay the statutory minimum on time may be so detrimental to maintenance of the minimum standard of living ‘necessary for health, efficiency, and general well-being of workers’ and to the free flow of commerce, that double payment must be made in the event of delay in order to insure restoration of the worker to that minimum standard of well being.” Applying this mandate, lower courts have almost universally held that an FLSA violation occurs on the date that an employer fails to pay workers on their regular paydays.

The government argued that the bright-line rule advocated here by the employees would mean that “any delay in payment would constitute an FLSA violation.” But this contention reflected “a misapprehension of how the timeliness rule applies and improperly conflates a finding of an FLSA violation with an award of liquidated damages,” the court said. All that mattered for now was whether an FLSA violation occurred when the government failed to pay its excepted workers on their regularly scheduled paydays. On this allegation, the plaintiffs stated a claim.

FLSA protected plaintiffs. The court found unpersuasive the government’s policy argument that the FLSA was intended “to protect low wage workers” who are denied the minimum wage — not to protect the plaintiffs here, whose pay was only briefly delayed. As the employees pointed out, many of the opt-in plaintiffs in this case are not highly compensated, but earn annual salaries in the $28,000 to $41,000 range. Further, by extending the reach of the statute to cover federal workers, “Congress clearly intended to protect such employees.” Contrary to the government’s contention, then, “a ruling for plaintiffs in this instance is consistent with the purpose of the Act.”

Workweek the proper standard. The parties also disagreed about the appropriate standard for measuring whether the employees were paid minimum wage on time: the government argued the minimum wage should be calculated according to a bi-weekly measurement — such that any potential plaintiff paid $580 or more during that pay period (i.e. $7.25 per hour x 40 hours x 2 weeks) failed to state a claim for relief. But the government offered no authority to support this approach. On the other hand, the plaintiffs urged an hour-by-hour calculation, wherein any single hour that either went unpaid or underpaid would be an FLSA violation. The correct approach lies in between, the court found: the majority approach is a workweek basis.

The court rejected the employees’ plea that even though the workweek approach is the norm, an hourly calculation is warranted given the unusual circumstances presented here. The employees argued that a workweek approach might be well and good for employees who simply missed a meal break (and were denied pay for the missed break) but were otherwise paid their regular hours worked. Those employees still at least know their total compensation, the employees noted. But here, the employees were not paid at all for work performed during a five-day period, they urged, and did not know how long they would have to wait to be paid.

In the end, the OPM minimum wage regulations, a DOL interpretive bulletin, and “an overwhelming majority” of other federal courts support the use of the workweek standard to calculate minimum wages due. Concededly, the use of this measure may be something of a “contrivance” where the employees were paid their regular wage for certain hours but were paid nothing for others, the court said. “Nonetheless, the language of the Act focuses on the aggregate pay for all work performed within a workweek.” Accordingly, the court of claims adopted the majority approach and, based on this calculation method, dismissed from the case any potential plaintiff who was paid more than $290 ($7.25 multiplied by 40 hours) for the week in question.

Split decision on overtime claims. The nonexempt employees also sufficiently alleged overtime claims for the shutdown period, the court held, rejecting the government’s defense that the late payment of overtime wages was acceptable under the circumstances because it could not compute the proper amount due while human resource employees and other federal workers were furloughed. The government also cited DOL regulations for the notion that employers are granted some leeway in paying overtime “when the correct amount of overtime compensation cannot be determined.” But whether the government was able to compute overtime during the shutdown was a factual question to be considered at a later stage, not a motion to dismiss.

On the other hand, exempt employees could proceed no further. Rejecting the plaintiffs’ argument that the exempt employees were not paid on a salary basis and thus lost their exempt status during the period in question, the court noted that OPM regulations — particularly, their definition of “executive,” govern federal-sector workers’ exempt status, not the DOL’s salary-basis test.

Liquidated damages? The government argued that liquidated damages were inappropriate at any rate, contending that it acted reasonably by paying the employees’ wages as quickly as possible after the budget impasse ended, and in light of the constraints that it was under due to the Anti-Deficiency Act. But that wasn’t the measure; what mattered was whether the government had a good-faith reason to believe its conduct was in compliance with the FLSA. And that, the employees argued, the government would never be able to show, and certainly not on a motion to dismiss. The court was not quite so fatalistic.

As for the Anti-Deficiency Act defense, the employees were on the job during the shutdown pursuant to an exception to this statute “for emergencies involving the safety of human life or the protection of property.” (Employees who were required to work during the impasse included prison guards, air marshals, border patrol agents, and the like.) Whether the Anti-Deficiency Act was enough to establish subjective good-faith on the government’s part sufficient to relieve it of responsibility for potential FLSA violations here was an open question — one that would be inappropriate to determine on a motion to dismiss. “Even if the court were to decide that a liquidated damages award is warranted, additional factual determinations remain to be made as to which employees, if any, are entitled to recover, and damages, if any, to which those employees would be entitled.”
By Lisa Milam-Perez, J.D.